Employment Discrimination Blog

What are the new Labor Department rules for overtime pay?

In May, the Labor Department announced new rules regarding overtime compensation that will go into effect on December 1, 2016. The federal agency has long-been considering the issue, so the changes to white collar exemptions under the Fair Labor Standards Act came as no surprise.

New Overtime Rule at a Glance

The new rule changes the annual salary threshold for administrative, executive and professional employee from $23,336 ($455/week) to $47,476 ($913/week). The new exemption amount will also be increased every three years starting January 1, 2020, based on a percentage of weekly earnings for full-time salaried employees in certain low-income regions. Highly compensated workers will also be affected by the new rule as their exemption threshold will be increased to $134,004, and workers making this amount will not be eligible for overtime pay. The rule also includes a provision that allows employers to include bonuses, incentive pay and commissions up to 10 percent of the threshold provided that these sources of income are paid at least quarterly.

Why This Matters

The new white collar exemptions have far reaching implications for a wide range of employers, including small businesses, government agencies, and not-for-profit organizations. More importantly, approximately 4 million employees who have previously been classified as exempt will be eligible for overtime compensation. While these workers had been considered exempt because they performed managerial tasks, the duties tests under the FSLA will remain the same. Ultimately, white collar employees stand to gain $12 billion in pay over the next decade, according to Labor Department projections.

The question remains, however, as to whether employers will reclassify workers or change their compensation schemes. Some observers argue the law may have unintended consequences in that some employers may decide to limit workers' hours so don't work more than 40 hours a week. Furthermore, some employees may see their hours reduced which will lower their pay, while other workers may lose bonuses. There is also the possibility that employers will make changes to employee benefits by changing how vacation pay is accrued or increasing employee's health insurance premiums.